The transition period for the UK’s exit from the EU has ended after both sides miraculously drafted a trade agreement before the end of 2020. It did not take British and European politicians long to approve of the pact prior to January 1, and the anticipated disaster of a no-deal Brexit was avoided.

Brussels has proven yet again that it is notorious for approving of deals at the last minute.

What’s Next?

Now that Britain has left the EU, its member states no longer have to deal with a nation that was seen as an obstacle to its integrationist ambitions. The UK was once a valued member of the bloc thanks to its influence in the US and its significant contributions toward the EU budget, yet it was always the awkward partner when it came to further integration, particularly under Conservative governments. Brussels’ approval of a trade pact managed to prevent economic disruption. However, the EU’s greatest challenges lie ahead.

Further EU Integration is Likely on the Way for the Sake of Survival

In theory, integration should be a lot simpler, particularly when it comes to monetary union. Former British chancellor Gordon Brown vetoed the UK’s participation in the eurozone and his successors have followed suit. This always made economic integration harder, but now the EU no longer has that excuse.

Last year, the coronavirus exposed the eurozone’s weaknesses. In July, the European Council hosted its longest meeting that it has had since the Nice, France gathering in 2000, and agreed upon a €750 billion recovery package. The package consisted of grants and loans to counter the economic impact that the coronavirus has inflicted on the bloc since March 2020.

Yet the negotiations revealed how divided the EU is as Sweden, Denmark, Austria, the Netherlands and Finland opposed grant extensions, whilst Spain and Italy favoured this outcome. Should the coronavirus continue to devastate the EU’s economy, some longer-term solutions will be necessary to ensure that the bloc can survive.

Strong Eurozone? Not So Fast

Milton Friedman and Martin Feldstein warned in 1999 that the eurozone cannot succeed without a political union. Given how the 2008 recession and the coronavirus pandemic revealed how vulnerable the euro is, they were right to make this argument. Even though Britain has left the EU, a strong eurozone is in the UK’s best interest as Europe will remain London’s strongest trading partner for now. Despite this, a strong eurozone may be nothing more than wishful thinking.

Now that Brussels has awarded Britain a free trade deal, many remaining EU member states could realize that they may be able to achieve the same outcome should they leave the eurozone or the bloc itself. The economic impact of the coronavirus has frustrated the populations of EU nations who have suffered as a result of the pandemic.  The Daily Express reported on one survey which suggests that 50 percent of Italians support an “Italexit,” or Italy’s exit from the EU, whilst 27 percent of Italians prefer to remain within the bloc.

Eurozone membership makes it impossible for Italy to devalue its own currency which is part of the reason why Italy’s economy has stagnated since 2008. This makes the prospect of southern European countries leaving the eurozone a possibility, should Italians vote for a coalition government committed to this pledge in the future.

Political Union isn’t Easy

Political union will be impossible to achieve without the full support of all of the EU’s member states. Polish Prime Minister Andrzej Duda and Hungarian Prime Minister Viktor Orban blocked the approval of the EU budget in November 2020. Both Poland and Hungary seem to be pursuing their own paths contrary to the democratic principles the EU is meant to uphold.

This led to Tom Theuns of EU Observer suggesting that a new EU could be founded without the support of Budapest and Warsaw.  This is a radical idea, but one that could gain momentum in the future should Brussels get even more frustrated with Orban and Duda.

Brexit is an exciting opportunity for both the UK and the EU. Regardless, the latter may find its ambitions could be thwarted by obstacles that are still prevalent post-Brexit. What happens to Europe next is anyone’s guess.

L'articolo Brexit: U-Turn for the Whole EU proviene da InsideOver.

US Secretary of State Mike Pompeo recently called on “free nations” to triumph over the threat of what he calls “a new tyranny” from China. The speech was intended to be provocative and US-Chinese relations are set to deteriorate further.

Pompeo’s Provocative Timing

His remarks coincide with Washington and Beijing’s tit-for-tat over the closure of consulates in their respective countries. On Friday, the Chinese Government ordered the closure of the US consulate in the south-western city of Chengdu. They argued it was a “necessary response” to the US, which ordered the closure of the Chinese consulate in Houston, Texas, on Tuesday, July 21, giving the embassy 72 hours to shut down all operations.

The Trump administration argued that its decision was provoked by unidentified individuals being filmed burning papers in bins in the building’s courtyard.

The Coronavirus Has Changed the West’s Relationship With China

The coronavirus has cast a light on the West’s relationship with China and the one nation that has been the most proactive in following the US’s lead is the UK. During his first foreign visit since lockdown restrictions across the world started to ease, Pompeo complimented the British Government for recent actions on China when he visited British Prime Minister Boris Johnson on Tuesday. The US Secretary of State heaped praise on British Foreign Secretary Dominic Raab for his government’s decision last week to ban equipment supplied by Chinese technology giant Huawei from the country’s high-speed wireless network.

Other decisions that the British Government has taken in recent months have also provoked anger from Beijing. China’s ambassador to London Liu Xiaoming, had lashed out at Britain on Monday night, accusing its government of meddling in Chinese internal affairs and violating international law in its opposition to China’s new security law that clamps down on Hong Kong’s freedoms. China’s behavior in Hong Kong triggered the British Government into offering the island’s 3 million inhabitants passports.

Pompeo faces many challenges elsewhere

Whilst the US can always depend on the UK as a close ally, Australia is also shifting its strategic approach toward China. Australian Prime Minister Scott Morrison launched the Defense Strategic Update and the Force Structure Plan in response to the deteriorating security environment along the Indo-Pacific region.

However, Pompeo’s greatest challenge lies in convincing the US’s European allies to support Washington’s stance toward China. The EU faces a dilemma over China as it intends to prioritize trade whilst defending the rights of Hong Kong’s citizens.

The European Council and China’s diplomatic mission to the EU announced that a bilateral trade agreement had been signed between the two mega markets. Considering relations between US President Donald Trump and the EU have soured over the last three years due to differences over trade tariffs, Brexit and quite recently over Trump’s decision to pull US troops out of Germany, his administration has had a difficult time persuading the EU to support his stance toward China.

This is NATO’s Opportunity to Play a More Proactive Role

Despite this, the EU is carving out its own defense policy because of the growing threat of China. In response to the Hong Kong security law, Brussels is preparing to restrict the sales of products that could be used for “internal repression.” This coordinated package is expected to be enacted before the end of July.

Although he has been critical toward NATO in the past, Trump needs this alliance more than ever to tackle Beijing and there are many ways he can deploy its effectiveness against China. For example, he could establish a NATO-China Council that would respond to China’s growing influence. The alliance should also deepen its engagement with its Pacific partners with more regular military exercises. NATO should also establish military headquarters in the Indo-Pacific region. But given that his relationship with so many of his NATO allies has deteriorated in recent years, Trump has a lot of rebuilding to do here.

The West is gradually waking up to the threat of China and Pompeo’s words have not completely fallen on deaf ears. But Washington still has a lot of work to do in building up a coherent strategy against China.

L'articolo Will Pompeo Succeed in Uniting the West Against China? proviene da InsideOver.

The European Council has just finished the longest meeting that it has had since the Nice, France gathering in 2000 and agreed upon a €750 billion recovery package. The package consists of grants and loans to counter the economic impact that the coronavirus has inflicted on the bloc since March.

European Council (EC) President Charles Michel described it as a “pivotal” moment for Europe and this sum represents the largest joint borrowing the EU has ever undertaken so far. The deal focuses on a €390 billion program to member states hardest hit by the virus such as Italy and Spain. An extra €360 billion in low-interest loans will alsombe available to EU states.

The ‘Frugal Four’ Opposed Grants for Spain and Italy

The agreement followed 90 hours of talks that started on Friday, during which tempers were frayed. The “frugal four” (Sweden, Denmark, Austria and the Netherlands) alongside Finland had opposed extending €500 billion in grants.

At one stage, French President Emmanuel Macron accused the frugal four of placing the European project in danger.

The €390 billion sum was recommended as a compromise, and the frugal countries were won over by the guarantee of rebates on their EU budget contributions.

Dutch Prime Minister Mark Rutte, despite being the biggest opponent of the original package, welcomed the deal.

This agreement will no doubt provide both German Chancellor Angela Merkel and Italian Prime Minister Giuseppe Conte with relief as they were the biggest proponents of the package from the beginning. Merkel argued throughout the last five days that “exceptional situations also require exceptional efforts.” Italian borrowing costs are also set to fall to March levels as the stimulus cheers markets.

The Deal Will Only Provide Short-Term Relief

Nonetheless, this stimulus will only provide the eurozone with short-term relief. Now that the EU has been provided with a recovery fund, the bloc’s greatest challenges lie ahead. The economic impact of the coronavirus has tested the single currency’s survival in a way not witnessed since the 2008 recession. If European leaders are serious about preventing a pandemic or any other external threat from threatening European unity again, they must deal with the bloc’s existential problems that the coronavirus exposed.

This was the first European Council meeting without Britain at the table. In December, a UK-EU trade deal should be completed, but if that process fails, the UK will quit the EU without a deal. This outcome would be far worse for the EU as Germany exports 800,000 cars to Britain every year, which equals 14 percent of all vehicles it makes domestically. German car imports would be levied by a 10 percent tax under World Trade Organization (WTO) rules.

Brexit Remains a Problem

The IMF suggests Ireland would suffer an output loss of four percent in the event of a no-deal Brexit. Therefore, EU diplomats should focus all their energy on preventing a no-deal scenario if they want to stimulate economic growth.

The coronavirus has also increased the prospect of other countries leaving the EU, too. The Daily Express reports on one survey which suggests that 50 percent of Italians support an “Italexit,” or Italy’s exit from the EU, whilst 27 percent of Italians prefer to remain within the bloc. Earlier this year, the President of the European Commission Ursula von der Leyen had to apologize for the way the bloc treated Italy at the start of the pandemic. It is unlikely that Italians will forget this when it comes to the polls, and COVID-19 has increased the prospect of an anti-EU coalition government being formed in Italy in the future.

Will There Be More EU Integration in the Future?

Milton Friedman and Martin Feldstein warned in 1999 that the eurozone cannot succeed without a political union. The coronavirus may make EU leaders realize that there is a greater need for political integration to prevent this situation from happening again, but it is looking doubtful all nations will agree, particularly Poland which is about to enter its own battle with Brussels over the imposition of gay marriage.

The markets may be celebrating the outcome of this European Council meeting, but technically the party is already over. How the EU evolves now will be the ultimate test of its survival.

L'articolo Why Eurozone Recovery Depends on More Than a €750 billion Stimulus proviene da InsideOver.

So far, the EU summit in Brussels has not made any progress. Austria and the Netherlands continue to oppose the current COVID-19 aid proposal worth 750 billion. Particularly Austria’s Chancellor Kurz is not inclined to transform the European Union into a transfer union – and rightfully so.

Real Disagreements Won’t Disappear Easily

The gap between the member states in the question of how the funds ought to be paid and whether stipulation ought to be attached to them remains substantial. Netherland’s Prime Minister Rutte and Austria’s Chancellor Kurz have proven to be hardliners, who are prepared to accept the failure of the plans rather than succumbing to a plan that, could turn out to become rather expensive of the member states.

That plan envisages that the total amount of Corona aid of € 750 billion will be taken up as joint debts of the member states by the EU Commission in the financial markets. The money will be paid to EU countries hit particularly hard by the pandemic, especially in southern Europe. Only € 250 billion are to be granted as loans that would have to be repaid by the recipients.

What Does Rutte Want?

Rutte rightfully seeks to tie the funds to the implementation of reforms. Moreover, he has advocated for a mechanism that requires a unanimous decision of the EU countries for any payment. Southern states such as Italy and Spain categorically reject the latter.

From an economic point of view, there is a strong argument for the package on the table. It would be a sign of European solidarity and nobility. However, the current circumstances are unique. One currently cannot predict the economic impact of the pandemic on the individual countries. Nevertheless, first indications have been witnessed on the labour market. With unemployment rising across the continent, governments have to find answers for people, answers that will not be cheap. Balanced budgets and reserves will thus be essential.

At the same time, the current situation shows one of the biggest fiscal problems in the European Union. While it has a common monetary policy, it does not possess a transfer system to support countries that are victims of an isolated event, such as COVID-19. Although the latter is a pandemic, it has had different effects on the individual states to date. For example, while Germany has been able to weather the crisis well so far, the Italian and Spanish economies are suffering severely.

The Austrian and Dutch Perspectives

For Austria and the Netherlands, payments are only fair if the European Commission monitors the quality of the respective proposals and only distributes the money if a country adheres to its commitments. However, this cannot be achieved under the current rules. In addition, and the Netherlands and Austria have this in mind, a country could not meet its requirements and still receive further financial injections later – based on the principle of solidarity. Their caution is hence justifiable, particularly as some countries are apparently inclined to utilize corona payments to balance budgets that had been handled inaptly for years prior to the COVID-19 occurrence.

It is not merely a question of whether or not the EU transforms into a transfer union. The latter de facto – albeit in infinitesimal form – is already in existence as transfer mechanisms are part of the current EU budget, i.e. in the EU’s structural funds. The issue is thus, to what extent the EU is willing to solidify the principle of joint debts amongst the member states.

Given the investment, the EU is about to make, certainty regarding subsequent use of the funds is a necessity. Corona payments must not be spent on a country’s crumbling structures. Governments that have not demonstrated a proclivity to balance their budgets should not receive funds without stipulations and enforceable guarantees. And thus Rutte and Kurz comprehend, perhaps better than any other European leader, that solidarity needs to work both ways.

L'articolo Rutte and Kurz Versus the Transfer Union proviene da InsideOver.

Considering how her reputation was tarnished by the 2015 refugee crisis, the coronavirus has provided German Chancellor Angela Merkel with an opportunity to secure a positive legacy during her final days in power. 2021 will mark her last year as Europe’s most powerful woman having presided over Germany’s chancellorship for over 15 years already.

Euronews reports on a poll that the news organization conducted which found that Merkel’s handling of COVID-19 made her popular with seven out of ten Germans that were polled at the time. This is due to the low number of COVID-19-related deaths that Germany has had. Both the French and the Italians who were polled at the same time also had a positive view of her when asked to rate their own respective leaders’ performance during the coronavirus crisis.

Will Markus Soeder Succeed Merkel?

However, the timing of Merkel’s popularity boost is poor and it has not stopped many from anticipating who her successor could be. The German Chancellor’s recent visit to Bavaria has sparked speculation in the German press that the state’s Prime Minister Markus Soeder could become Merkel’s successor.

Nonetheless, she has publicly refused to endorse the Bavarian Premier as her successor. The German Chancellor commented that Soeder is a good Prime Minister, but she refused to comment further. Merkel’s comments have not prevented Bild, Germany’s largest newspaper, from referring to the Bavarian Prime Minister as “the crown prince.”

It is understandable why many in the German media view him as Merkel’s natural successor. Soeder managed to establish himself as the coronavirus started to cripple Germany. He was among the first of Germany’s 16 state premiers to impose lockdowns and introduce mass testing programs.

Soeder is an Established Figure

By inviting the German Chancellor to Herrenchiemsee, a castle on an island in a lake where Germany’s constitution was drafted in 1948, this could be portrayed as a purely calculated move for the Bavarian politician to present himself as a national leader, as opposed to a regional one.

Soeder’s consistent national television appearances contrasts with those of Armin Laschet, the Prime Minister of North Rhine-Westphalia, who is also considered to be the other front-runner for the conservative nomination. According to Reuters, she has had a tougher time mastering the pandemic, with a number of outbreaks occurring at a slaughterhouse in Guetersloh, which infected thousands of workers.

Until Merkel clarifies who her successor is, these reports are just rumors for now. It was widely anticipated that Annegret Kramp-Karrenbauer, who succeeded Merkel as the Christian Democratic Union’s (CDU) party leader, would also become Chancellor as soon as Merkel retires. Regardless, she resigned earlier this year and said that she would not run for Chancellor in the 2021 federal election.

Merkel’s Reputation is in Tatters

As Merkel proceeds with persuading her European counterparts to support a €750-billion package to rescue the EU’s economy from the economic fallout caused by the coronavirus, these rumors about her successor seek to undermine her leadership during a critical time for the rest of the EU. With the Netherlands stating that a deal is unlikely over the weekend, this could have devastating consequences for her chancellorship and speed up the process of succession.

Even if Merkel succeeds in negotiating an EU-wide rescue package over the weekend, her longer-term legacy in Europe is in tatters. Dutch Prime Minister Mark Rutte met Merkel last week and pushed for EU-wide financial reform, but as Euractiv’s Kenneth T. Stiller argues, she has had a considerable period of time to implement EU reforms that could have deepened European solidarity. For example, in 2011-12 she could have urged her counterparts to support steps toward a fiscal union to prevent the eurozone from exploding back then like it is now.

Although Merkel’s popularity is riding high overall, it could be short-lived depending on the outcome of this weekend’s European Council meeting. Either way, many in the German media are concentrating on the future. Although that damages the CDU in the short-term, it is important to highlight that Merkel’s successor has some substantial challenges ahead in preserving European solidarity. It is no wonder many journalists are speculating who could become the next German Chancellor in 2021.

L'articolo Rumors of Merkel’s Successor are Undermining Her Leadership proviene da InsideOver.

Last weekend, as Poles set out to elect their next president, Europe’s ideological divisions were thrown into sharp relief. In one corner, the incumbent Andrzej Duda — a man indicative of Eastern Europe’s growing conservatism — standing on a platform of nationalistic populism. In the other, Rafal Trzaskowski, a Europhile liberal and defender of minority rights.

Who Won Poland’s Election, Duda or Trzaskowski?

With the first-round votes counted, neither one had reached the requisite 50% (Duda took just under 44% of the vote, while Trzaskowski recorded just over 30%), triggering a runoff ballot to be held on July 12.

The decision ahead of Poles reflects a far wider crisis of unity afflicting Europe: the rise of nationalist governments who have generated controversy over their approach to press freedom and the rule of law in the East, versus the enduring liberal traditions of the West.

Though more moderate than, say, Serbia’s president Aleksandar Vucic or Hungary’s Viktor Orbán, Duda has much in common with these right-wing leaders.

Taking a Look at PiS

Poland’s ruling Law & Justice Party (PiS) — with which he is aligned — is wedded to a program of state transformation, including new laws that limit media freedoms and punish judges who are considered to have inaccurately maligned the government or ruled by activist sympathies. As president, Duda has waved through these measures, chipping away at Poland’s democratic credentials.

Yet, the 48-year-old still clearly enjoys significant support, even though he failed to meet the 50% threshold for a first-round triumph.

Duda’s Popularity is in Decline

Duda’s popularity is in decline, however. Prior to the COVID-19 outbreak, he looked set for a stonking victory. But the government’s lackluster performance on the pandemic and recent allegations of corruption have seen his support base ebb away.

The emergence of Trzaskowski — Warsaw’s cosmopolitan mayor — as a viable candidate has also stung the incumbent. Perturbed at the country’s trajectory under PiS’s brand of nationalistic conservatism, many Poles have turned to Trzaskowski in the hope that he will be a check and balance against the PiS’s right-wing policies. As president, the Warsaw man would have an effective veto on government legislation.

Gay Rights Becomes a Focal Point

Startled by Trzaskowski’s striking rise in the polls, Duda’s campaign shifted gears in the weeks running up to the first-round vote, forcing the conversation onto social issues. The rights of LGBT people has been a particularly fierce battleground.

Seeking support from Poland’s rural, Catholic voter base which remains staunchly against same-sex marriage — Duda has played the family values card, promising to protect the nation against the proliferation of “LGBT ideology.”

A strong supporter of gay rights, Trzaskowski has offered Poles a very different vision with regard to equality. Elements of the media — which various mainstream and left-leaning analysts say is largely under the thumb of the administration — have sought to turn this against the moderate candidate. Sieci, a pro-PiS weekly magazine, recently published a front-cover depicting a hooded Trzaskowski wearing a rainbow armband, with the caption: “the extremist candidate”.

What Happens Next?

This attempted character assassination appears not to have worked, however. By taking 30% of the vote, Trzaskowski has secured himself a strong position for the second-round runoff. Indeed, if electoral polling is to be trusted, he — not Duda — is the odds-on favorite to win the deciding ballot next month.

That would send a strong signal that Eastern Europe still holds dear the core democratic values upon which the continent is built.

L'articolo Poland’s Presidential Race Reflects Europe’s East-West Ideological Divide proviene da InsideOver.

British Prime Minister Boris Johnson’s Europe adviser David Frost and the EU’s chief Brexit negotiator Michel Barnier met face-to-face for the first time since the coronavirus crisis started on Monday to thrash out a post-Brexit trade deal. The pandemic forced UK and EU negotiators to hold virtual talks.

The meeting comes just a day after it was announced that Mr. Frost would replace Sir Mark Sedwill as national security adviser.

Johnson remains optimistic that a UK-EU free trade deal can be agreed by the end of July, but if the agreement has any hope of being ratified before the end of the year, then all negotiations must be completed by the end of October.

The UK ‘Will Have to Live with the Consequences of Brexit’

There are many reasons to believe that a deal may not happen. On Saturday, the Prime Minister warned German Chancellor Angela Merkel that he is prepared to walk away from EU trade talks after Merkel suggested that the UK will ‘have to live with the consequences of Brexit.’

But Merkel’s upcoming presidency of the EU could be an opportunity for both sides to make some progress towards a trade deal. With the bloc’s most powerful leader occupying its presidency, the Chancellor is likely to adopt a pragmatic stance during the final months of Britain’s transition period.

She told her EU counterparts recently that the autumn deadline to conclude an agreement is fast approaching, which shows that she is keen to ensure that the UK does not quit the bloc without a deal.

Brexit is a ‘Wake Up Call’ for the Rest of the EU

At the start of the year, she also warned that Brexit is a ‘wake up call’ for the rest of the EU as Merkel fears that Britain could become the EU’s main economic competitor on the continent. However, a free trade deal between the UK and the bloc is the lesser of two evils for her, as a no-deal Brexit could devastate the EU’s economy, particularly Germany’s. 800,000 German cars are exported to Britain every year, which equals 14 percent of all vehicles it makes domestically.

Earlier in June, Barnier insisted that he is not asking the UK to follow EU rules after it has completely left the bloc, and that his position was ‘misunderstood.’ Despite this, he did accuse the British Government of attempting to ‘cherry-pick’ staying in parts of the EU’s single market that it has benefited from the most. Either way, it would be wise for Frost’s team to take advantage of the ‘clever compromises’ Barnier has promised, but only if they benefit the UK.

Is a Compromise on Fishing Finally Emerging?

Fishing was once the biggest stumbling block that delayed both Britain and the EU from making progress in the Brexit negotiations, but it appears as if Brussels is doubling down on its fishing stance. Leading Brussels insiders told The Daily Express that Barnier will back down on the EU’s red line on fishing at the last moment. This would represent a substantial blow for French President Emmanuel Macron, who wants both parties to agree to a post-Brexit fishing arrangement that mirrors the Common Fisheries Policy (CFP).

RTE London Correspondent Seán Whelan also told the newspaper that now is not the time for Brussels to shift its position on fishing. This is because they are focused on debating European Commission President Ursula von der Leyen’s post-coronavirus stimulus before they concentrate on Brexit again. This means that the EU may compromise on fishing in September or October before the deadline for an agreement ends. But such an outcome may face hostility in the European Parliament, with French MEP François-Xavier Bellamy stressing that it is vital to France’s fishing industry for French fishermen to continue to access British waters.

Therefore, the tide seems to be turning in Britain’s favor for both sides to reach a post-Brexit trade pact, but such an outcome can only be achieved if the UK and the EU continue to show flexibility during the final months of the transition period.

L'articolo Why is a Brexit Deal Becoming More Likely? proviene da InsideOver.

France has become the next European nation to end its lockdown in the midst of the coronavirus pandemic. French President Emmanuel Macron recently  hailed a “first victory” against the virus over the weekend while also promising that lessons will be learned from the pandemic, referring to the impact that it has had on France’s economy and its healthcare system.

On Monday, cafes and restaurants in Paris reopened, nearly two weeks later than the rest of the country.

France’s borders with other EU member states also reopened on Monday, while borders with nations outside of the bloc where the virus has also been defeated will reopen on July 1st.

On June 22, every school child under the age of 16 will be required to return to full-time education.

Macron’s Battles Have Just Started

According to recent data, 194,153 French citizens were infected with COVID-19. Officially, 29,410 people died as a result of the epidemic in France, whilst 72,982 others were cured. As of June 14, only 9 people died of COVID-19. This is a remarkable turnaround for France and it is little wonder that Macron feels confident enough to reopen his country’s economy again, even if it means that travelers from the UK and Spain will have to self-isolate for 14 days.

However, while the French President may be claiming he has defeated the coronavirus, his real battle starts now. France has been struck with an economic blow because of the lockdown, which caused output in the first quarter to drop by 6 percent once Macron placed his entire nation into quarantine.

France’s Lockdown Will Have Long-Term Negative Effects

The IMF claims that the French Government’s fiscal support measures equal 4.7 percent of GDP, including the nation’s chomage partiel job subsidy scheme. Furthermore, they anticipate that output will drop by 7.2 percent for the rest of the year.

The Governor of France’s central bank, the Banque de France, said in May that the lockdown had cost the French economy around 6 percent in lost activity.

If Macron cannot trigger economic growth in France, many French citizens may wonder whether it was worth going into lockdown in the first place, especially when nations such as South Korea were able to tackle the pandemic’s spread via a contact tracing system.

Prior to lockdown, France’s economy was already in a poor state. GDP fell by 0.1 percent in Q4, with Finance Minister Bruno Le Maire blaming protests earlier in the year for harming economic growth.

Macron Has Many Upcoming Struggles in Europe

France’s economic fortunes also depend upon what happens in Europe. If Britain and the EU cannot agree on a post-Brexit trade deal, then the French economy could potentially lose 140,000 jobs according to a report released last August. With the French President in a powerful position to influence the final outcome of the Brexit negotiations, and the deadline for a deal fast approaching, the time is coming for both sides to show some flexibility if they are serious about reaching an agreement.

Macron is due to attend a tricky European Council (EC) meeting that will discuss European Commission President Ursula von der Leyen’s €750 billion stimulus, and despite Germany’s support for this package, a watered-down total could be negotiated as the Frugal Four (Sweden, Denmark, the Netherlands and Austria) oppose member state grants and prefer loans. Failure to approve of a package of this size will have wider political and economic consequences for the rest of the EU.

Can Macron’s Presidency Survive?

Prior to COVID-19, the French President supported a vision for greater economic integration in the eurozone, and the coronavirus will continue to test the EU’s solidarity for the rest of the year. But with Italy’s economy in dire straits, it is clear at some stage that EU leaders will have to decide whether they support Macron’s vision or not. This will be an ongoing struggle for the French leader.

Macron may have felt it was necessary to place his entire nation into lockdown, but the economic effects of his decision have yet to creep up on him. How France’s economy recovers will determine his fate.

L'articolo Macron’s Post-Coronavirus Economic Challenges Are Just Beginning proviene da InsideOver.

In a desperate attempt to mitigate the economic effects that the coronavirus has had on the EU’s economy, the European Central Bank’s (ECB) President Christine Lagarde announced on Thursday that the central bank will increase its Pandemic Emergency Purchase Program (PEPP) by €600 billion.

The amount comes on top of €750 billion of government bond purchases that the ECB announced in March. Altogether, the program will cost €1.35 trillion.

Furthermore, the EU institution said that the duration of its COVID-19 bond-buying program would be extended from the end of 2020 until June 2021, or until the bank believes that the crisis is over.

Lagarde’s Announcement Calms Markets

The central bank’s announcement has already had a positive impact on the market as it contributed to a further reduction in lending costs, with the yield on Italy’s 10-year government paper dropping from 1.56 percent to 1.40 percent shortly after the decision was announced.

The euro was 0.25 percent higher than the US dollar following the ECB’s announcement.

The coronavirus has had a severe impact on the EU’s economy. According to data obtained by CNBC, the unemployment rate rose from 7.1 percent in March to 7.3 percent in April due to the lockdown impacting upon jobs.

Nonetheless, manufacturing and services activity reached a three-month high in May.

Lagarde Will Not Let the Eurozone Collapse

By expanding the ECB’s bond-purchasing program, Lagarde has proven yet again that she will do whatever it takes to prevent the eurozone from collapsing and that she will amend the central bank’s own rules to thwart such an outcome. However, the ECB President still has many obstacles to overcome before she can claim that her bond-buying program is a total success.

The German Constitutional Court remains firmly opposed to the Bundesbank’s participation in any EU bond-purchasing scheme. Last month, Germany’s highest court declared that the PEPP must be ‘proportionate.’ This is despite the fact that the European Court of Justice (ECJ), the highest court in the EU, ruled in December 2018 that the ECB’s bond-buying program is legal. Germany’s highest court maintains that the ECJ had acted outside of its powers and its judgment is considered arbitrary, which shocked the President of the European Commission, Ursula von der Leyen, at the time, and many others.

The Guardian reports that Lagarde is confident that a good solution will be found that does not compromise the ECB’s independence. Despite this, there is no guarantee that the German Constitutional Court will share Lagarde’s optimism regarding the central bank’s PEPP.

The ECB President told a press conference that there is a “broad consensus” over the new stimulus package, but that remains yet to be seen. If a compromise solution cannot be reached with Germany’s highest court, then it is difficult to see how Berlin can legally participate in the PEPP. That is why some could argue that the German Constitutional Court may have killed the eurozone.

The Eurozone’s Fate Rests in Germany’s Hands

Ultimately, the eurozone’s fate will be determined by the German Constitutional Court. If Germany can legally participate in the PEPP, then Lagarde would have got her way, but the stimulus is only the beginning in terms of reforming the eurozone further. For the eurozone to survive in the long-term, it needs further integration and monetary reform, otherwise it will be very difficult to maintain its existence in the future.

Lagarde may be confident that she can compromise with the German Constitutional Court, but considering they opposed the original stimulus, a much larger one might be hard for Germany’s highest court to stomach. But at least for now, the ECB President can celebrate the announcement of her latest stimulus package, even if it means that her struggles have only just begun.

L'articolo Will Lagarde’s Expanded COVID-19 Stimulus Rescue the Eurozone? proviene da InsideOver.

The EU has already pledged itself to a €540 billion bailout to rescue the eurozone from the economic effects of the coronavirus, but the President of the European Commission (EC) Ursula von der Leyen, announced on Wednesday that she will pledge an extra €500 billion on top of the sum the bloc is already willing to spend. Altogether, that means Brussels is spending €1 trillion to aid the eurozone’s recovery.

On top of killing 172,000 people across Europe so far, the coronavirus has brought the continent’s economy to a grinding halt, with businesses gradually reopening and tight controls being imposed on borders that were once wide open for trade and travel.

France and Germany Support von der Leyen

The EC President intends to help the countries most affected by the pandemic such as Italy and Spain, and she already has the support of France and Germany. The latter countries announced their own joint initiative last week to raise €500 billion on financial markets to begin fixing the eurozone’s problems.

But von der Leyen’s proposal on Wednesday is likely to encounter some obstacles. COVID-19 has also revealed the EU’s inability to agree upon appropriate fiscal measures to lift the bloc’s economy out of a recession. There is an argument over whether the EU’s funds should be loans or grants. The “frugal four,” which consists of Austria, Denmark, Sweden and the Netherlands, are against joint debt in the form of coronabonds and favor loans. Italy and Spain have suggested that loans would not be sufficient to help them recover from the economic effects of the virus.

Coronavirus Has Exposed the EU’s Deep Divisions

The reason why the frugal four oppose grants is because they would require net contributors who pay into the EU’s budget to fill the financial black hole caused by the UK’s exit from the bloc. Before Brexit, Britain was Brussels’ biggest contributor. On the other hand, funding the continent’s recovery through loans would result in nations like Italy being saddled with more debt.

Mujtaba Rahman, Managing Director for Europe at the consultancy Eurasia Group, told CNN that without German opposition, the frugal four will struggle to convince enough member states to block the EU’s recovery fund. This will make it slightly easier for von der Leyen’s plan to be approved.

Nevertheless, that does not mean Germany will be footing the entire bill. The German Government has not agreed to provide the capital guarantees to procure relief funds before 2021.

An Agreement Won’t Come Easy

But time is tight and because the EU consists of many layers. This makes it harder for the bloc to come to a decision sooner. The European Council, which brings the EU’s leaders together twice a year to make important decisions, is meeting in June or July and they will need to negotiate a final deal then. The European Parliament would then need to provide an affirming vote in early September.

The political consequences of failing to reach an agreement would be substantial. The markets would panic and the EU’s credibility would be in tatters.

Timing is Everything

Even if all the EU’s member states manage to agree what a final stimulus package would look like, the eurozone’s survival depends upon the scale of recovery in the southern European states, particularly Italy. The Daily Express reports on one survey which suggests that 50 percent of Italians support an “Italexit,” or Italy’s exit from the EU, whilst 27 percent of Italians prefer to remain within the bloc. If the Italian economy continues to stagnate, these numbers are only likely to increase.

With Germany’s support, von der Leyen will more than likely win the European Council’s approval for her stimulus in June or July, but she should anticipate that her plans will more than likely be watered down. Like with all the crucial decisions the EU makes, timing is everything, and if the member states fail to agree on anything, Europe’s recession will be deeper than expected.

L'articolo Can von der Leyen Unite the EU Behind Her Coronavirus Stimulus? proviene da InsideOver.